In a new rule, SEBI had said that for better corporate governance chairperson of the board should be a non-executive director and should not be related to the MD or CEO.

Nearly half of Indias top 500 firms yet to split chairperson MD rolesImage for representational purpose only
Money Corporate Tuesday, January 07, 2020 - 10:24

The Securities and Exchange Board of India (SEBI) had issued a regulation that companies must segregate the posts of Chairperson and Managing Director and they should not be related to each other as well. The companies were given sufficient time, almost 2 years, until April 1, 2020, to comply with this directive. With that date fast approaching, Economic Times reports that around 50% of the top 500 listed companies are yet to be in compliance. The list is led by the largest firm, Reliance Industries Limited, where Mukesh Ambani continues to be the CMD.

The decision was based on the recommendations of a committee headed by Uday Kotak that SEBI. The committee was set up to suggest ways to ensure better corporate governance in promoter-led companies. The SEBI order had said the Chairperson of a company’s board must be a non-executive director and should not be related to the Managing Director or the CEO. This meant that these companies had to appoint a professional as the non-executive Chairman and manage the affairs through the promoter family appointees to executive roles.

The alternative is to bring in a professional to be made the CEO who will report to the board and the Chairperson from the promoter family could supervise the activities. This stipulation is not applicable to those companies that don’t have identifiable promoters as determined by the shareholding pattern.

Statistics now gathered indicate that there are 213 companies which still have Chairpersons holding executive positions. In 161 of these 213, the Chairperson is also discharging the functions of the MD or CEO. As mentioned, RIL is one such company; others in the list include Hindustan Unilever, ONGC, Coal India, NTPC, Bharat Petroleum Corporation and Power Grid Corporation. The last few named here are public sector enterprises. Other figures reveal there are at least 79 companies where the Chairperson is related to the MD or CEO. The notable inclusions in this list are Bajaj Finserv, Bajaj Auto, Adani Port, Shree Cement, UPL and Lupin.

Experts say this practice is followed in some of the developed economies like the UK and the US, though in the US, the figure is just over 50% while in the UK, it is absolutely mandatory.

Some observers say, reluctant to share their powers, some of the promoters are lobbying to get the date further extended for implementation. There is abundance of cases where such concentration of powers has led to poor governance.

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